Local Taxation – Rates

Rates are a tax on real-estate property. Almost all of property owners in New Zealand have to pay rates. Those who do are referred to as ratepayers. People who rent out property do not pay their rates directly but will take account of the cost of it when they set the rent. Some properties are exempt from rate levies such as government land and rail land. Some properties such as sporting grounds might only be rated at 50%. Maori land, where ownership and liability for rates is hard to determine can also receive special treatment.
Territorial authorities may assess property values in three different ways, on the basis of land, annual or capital value, using valuations prepared in accordance with the Rating Valuations Act 1998. The valuation process is overseen by the Valuer-General. Each local authority, after consulting with their community, can decide which basis to use.
Councils can use a mix of these different methodologies when assessing rates based on the value of holdings, for example land value for its general rate and capital value for a targeted rate.
Councils can also levy flat charges per rating unit (i.e. each lot of land, with some exceptions where multiple adjacent lots may be considered one rating unit if in common ownership, or where multiple dwelling-units are on a single lot) – generally called a uniform annual general charge. Other methodologies also exist, such as a charge per toilet bowl or urinal, or a water charge per cubic metre of water supplied.
The Local Government (Rating) Act 2002 is the governing legislation and provides a number of options for setting rates, such that local authorities can use combinations of general rates, targeted rates and/or uniform annual general charges.
Mechanisms are set out in the LGRA so that councils are able to raise revenue through rates from their community, specified groups or categories of ratepayer.

• General rates – where the whole community meets costs of a particular function or functions. These taxes are rated on property value, according to a ‘cents in the dollar’ formula set annually by the council. The amount ratepayers pay varies according to their property value. Each council decides if the rates will be assessed on the land value, the capital value or the annual value of the property.
• Targeted rates – these are designed to fund a function or group of functions. Factors which can be used for calculating targeted rates are– land value, improvement value, capital value, annual value, total land area, area of land paved, sealed or built on, area of land protected, area of floor space of buildings, number of connections, number of water closets and urinals, number of separately used/inhabited parts, and extent of provision of services.
• Differential rates – general rates can be set on a differential basis, where the council can take into account property value, location, area, use, and activities allowed for under the Resource Management Act.
• Uniform annual general charges – these are fixed charges applied to every rating unit, no matter the value of the property.
• Water rates – some councils meter water consumption and charge accordingly.

Where any targeted rate is calculated as a fixed amount per rating unit, a council cannot collect more than 30% of its total rates revenue by way of a combination of those targeted rates and the uniform annual general charges.
Regional councils have the same rating powers as territorial authorities.